What is Economics?

What is Econ? Economics: the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants.

Wants vs. Needs To economists, wants and needs differ. Something that is necessary for basic survival is a "need;" anything else is a "want."

Scarcity Why can’t people fulfill all their needs and wants? scarcity – Unlimited wants – Limited Resources

Now what? The basic problem of economics—forces people to make choices when satisfying their needs and wants. (making choices story)

Factors of Production When economists talk about scarce resources, they are referring to four factors that must be present for any good or service to be produced: Land – natural resources without human intervention Labor – the work people do – Goods – things you can touch – Services – activities done for others for a fee

Factors of Production (cont.) Capital – manufactured goods used to make other goods and services – Increases productivity – ability to produce things in better and faster ways Entrepreneurship – ability of individuals to start new businesses, introduce new products and processes and improve techniques – Risky – 30% fail – Entrepreneurship Quiz

Factors of Production (cont.) Technology? – any advancement that allows things to be done more efficiently 30M 30M

Twinkies “Twinkies were invested in 1930 by James A. Dewar, a plant manager for Continental Baking Company. Faced with economic hardship, it didn’t make sense to Dewar that the bakery had lots of expensive pans dedicated to a product called Little Shortcake Fingers that was baked only six weeks a year – during strawberry season. Dewar thought the little cakes could sell year-round if the company came up with something to replace the strawberry cream placed inside. He mixed up a banana-flavored ‘crème’ and figured out a way to inject it into the shortcakes using syringe-like injection tubes.” What factors of productions go into the making of Twinkies?

What will it cost you? Because of scarcity, people must make choices about how they will use their resources. These choices result in trade- offs and opportunity costs. ChoicesTrade-offs & Opportunity Costs Trade-offs – sacrificing one good or service for another (what do you have to give-up?) Opportunity Costs – the value of the very next best alternative – What is the value of what you had to give-up? – You are always losing something

Economics of Seinfeld Make a choice: 1. Ok with red glare – get chicken 2. No red glare – no chicken = Opportunity cost

Decision-Making Process Define the Problem Identify the Choices Evaluate the Advantages and Disadvantages of Each Choice Choose Act of Your Choice Review Your Decision

How do Economists make decisions? Economists use a production possibilities curve to reveal trade-offs and opportunity costs involved in business decisions. Graph shows the max combinations that can be produced from a fixed amount of resources (helps decide how to use resources)

Guns vs. Butter Military vs. civilian The current federal reimbursement program is based on household incomes; the poorest American students receive $2.47 of federal funding towards their “free lunches”, while students from the highest income bracket only receive $0.23 per meal. The problem is, the average school lunch now costs $3.10, so these days no one is actually receiving a “free lunch”, not even the poorest American students.

Schools of Thought This chapter also focuses on how economic models help economists analyze problems, and it concludes with an examination of why there are different schools of economic thought. Micro-economics - economics of small units (individuals and firms) Macro-economics – economy as a whole; large units (government) Economy – all the activity in a nation that together affects production, distribution and use of goods

Models Economic Models – simplified representations of the real world (a visual look at a complex econ situation) – Good way to create a hypothesis – educated guess – Too many factors to accurately predict

Economists Economists deal with facts – Influenced by opinion, government, etc –- many different views and theories – Economists help us by informing us as to likely short-term and long-term outcomes